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Consultants requesting backup withholding

Stuart Ferguson's Profile

The company I work for offers to do backup withholding for consultants if they note their request on the W-9.  We have quite a few that accept this, but based on where I have worked before I consider this very strange.  There are only been a few cases where I have had to do backup withholding for 1099ers, but none of them simply because they requested it.  It seems to me that this puts undo burden and liability on my company to do this.  Am I off my rocker or is this strange?  Are there any other concerns with this practice?

Answers

Topic Expert
Marc Schwartz
Title: Partner
Company: Schwartz International
(Partner, Schwartz International) |

Stuart:
I agree with you that someone requesting backup withholding is strange. Generally the backup withholding is almost a "penalty" in the eyes of the payee. If these are contractors, they could be requesting this withholding in lieu of having to make estimated payments. A related, and possibly more material issue, is whether you have employees as opposed to contractors.

Dabney Wellford
Title: CFO
Company: Wellford Consulting
(CFO, Wellford Consulting) |

While I agree that it is a pain for the company, it is no different than withholding for an employee. The consultants are simply trying to make sure that they pay taxes ahead of the penalty dates, which could benefit tham if they get into the penalty situation at the end of the year. The rules are the same - the Evil Empire (the IRS) wants the money as soon as it is collected, as if it is earned at that point. Someone needs to explain the GAAP revenue matching concept to them.

Stuart Ferguson
Title: Hidden
Company: Hidden
(Hidden, Hidden) |

Dabney,

I understand that, but there is no actual legal requirement for us to do their withholding for them is there? I assume we have just done so to be nice.

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